Indiana Department of Financial Institutions

Parents spend time and money on tutors, music lessons, and organized sports; provide computers and the latest electronic games but they are not providing their children with one of the most important things their children will need to survive in the real world -- good financial sense. In a survey completed by the National Council on Economic Education, two out of three high school students flunked a quiz on basic economic principles. Another study by the determined that the average high school graduate can't even master such necessities as balancing a check book.

The ability to manage personal finances is a fundamental skill that should be taught. While more and more schools are adding economics instruction to their curricula and organizations from the Girl Scouts to MasterCard are also taking on the challenge, parents must play a part. Here are some tips to help every Mom and Pop instill their youngsters with some good dollars and sense.

Start Early

Experts say that once your children understand that money is used to buy things, they are ready to learn more. You can start your child's financial education with five minutes and some loose change. A basic understanding of money is critical, including such things as where money comes from and how it is used. Don't assume kids understand these basics.

Give Your Kids an Allowance

Children need to know how to spend money independently. In order to do this, they need to have their own money. The ultimate goal of an allowance is to have your child deftly handling all expenditures before he or she leaves for college. Most experts agree that first grade is a good time to start and they are unanimous in telling parents to adopt a hands-off attitude. We all learn from mistakes and it's nice if children can do that at a young age when the mistakes are small.

How much allowance? There is not a hard and fast answer. A recent online survey showed parents typically give $3 a week to 6 to 8 year-olds and $5 a week to 9 to 11 year-olds. Some experts suggest $1 per year of age. A common-sense approach is to base the amount on what you expect the allowance to cover - school lunches, candy and video games, friends' birthday gifts, etc. Whatever the amount, it has to be enough so that your child can actually learn to manage it.

Let Children Learn by Doing

The best way to understand how financial institutions work is to use one. Open a savings account for your child at your bank. Have your child start saving a portion of his/her allowance and as an added incentive, tell him/her that you will match his/her savings.

Teach Them to Distinguish Wants from Needs

Basic money management is taking care of needs first, wants second. But do children know the difference between the two? Not without help. Initiate discussions about what a need is versus a want. Have ongoing discussions. They aren't just learning to manage money; they're learning to think also.

Be a Good Role Model

Your actions speak louder than words. You can't tell your children they should save money, then constantly spend, charge, and go into debt yourself. You, as a parent, make economic judgments every day. Discuss your financial decisions with your children present so they can learn from them. Involving your children in family finances can be one of the best ways to teach them about managing money.

Parents Can Prepare Kids to Use Credit Wisely

Abstinence is the best policy for teens and credit, but parents can't assume kinds will agree. Here's how to prepare kids to use credit wisely:

Set a good example. It's never too early or too late to encourage saving and living within one's means. Teach kids frugal habits, such as how to shop and cook.

Co-sign for a starter card while teens live at home so you can review and discuss charges and instill the habit of paying them in full each month.

Teach kids how to decipher a credit card statement, particularly what interest rate is being applied and how charges are calculated. Make them read the fine print, where it may say, for example, that if they miss a payment, the interest rate goes up.

If you object to credit card soliciting on campus, let your child's school know.

Does Your Child's School Offer Classes in Financial Management?

Be sure to find out if your child's school offers any financial management instructions. It is important that children be taught how to make wise personal finance decisions before they graduate from high school. Balancing a check book, saving and investing for tomorrow, and managing debt are all so important to building a successful future.

The Indiana Department of Financial Institutions has a six unit study program and mini-lessons on Credit Rights and Responsibilities which is available on the Internet.